The Overland Park City Council on Monday night agreed to rein in payday cash loan stores, which have more than tripled in the region’s biggest suburb since 2005.

The council voted unanimously to impose a one-mile limit between new no fax cash advance stores and require the existing ones to register with the city and pay a yearly $1,000 licensing fee.

The law, which also extends to car title loan stores, would keep the shops at least 200 feet from residential areas.

City officials want to stop the proliferation of the stores, which they say take advantage of customers with high interest rates and present the appearance of blight.

Overland Park is one of between 50 and 60 cities across the nation that have taken steps to corral fast payday advance stores, said Christopher Peterson, a law professor at the University of Florida who has studied the payday loan industry.

But Peterson questions how effective zoning laws are at addressing the problem, saying that states are often in a better position to do things such as limiting interest rates charged by personal cash loan shops.

City Councilman Terry Goodman, who led the payday loan initiative, acknowledged that zoning laws might not stop residents from using payday loans stores already in the city. He agreed that the state needs to take charge.

There was an effort to limit interest rates on savings account payday loan stores in the Kansas Legislature this year, but published reports indicated that the measure may not succeed this year.

The following is a paraphrased editorial from the Foster’s Daily Democrat in Dover, NH:

It might seem easy to argue caveat emptor in the debate before the Legislature over no fax payday loans. But suggesting it is simply an issue of “Let the buyer beware” would not address the problems created by these loans.

Several bills currently working their way through the legislative process would put caps on the annual interest rates payday loan services could charge. These would be akin to limits commonly found with credit cards.

But quick payday loan advocates argue that such limits would put them out of business.

For example, loaning someone $100 against next week’s paycheck can cost $20. While steep, that amount may not seem unreasonable to the borrower. Except when the loan is not repaid on time and is rolled over, the debt can rapidly escalate — at more than 500 percent per annum.

One cash loan online spokesman contends a suggested cap of 36 percent on a two-week loan would mean a fee of only $1.38, not enough to justify doing business.

Part of the dilemma facing the Legislature is figuring out who the demon is in this debate, if there is one. On the one hand, there are legal loan services, which have to cost-justify their existence. On the other, there are workers who find themselves short of cash with no hopes of borrowing from a bank — either because of poor credit or the short duration of their loan request.

Some who advocate for caps liken fast cash advance companies to loan sharks, taking advantage of people they know — or should know — will default. Loan companies defend themselves with statistics like Advance America, which claims a 95 percent repayment rate.

Striking a middle ground in this debate appears to be state Sen. Lou D’Allesandro, who suggests passing legislation that would keep the door open for those with poor credit and little where else to turn.

“Are we going to force those people to illegal, illicit loan sharks?” D’Allesandro told the Associated Press.

If this is the route to be pursued, the Legislature must emphasize full and clear disclosure.

While there may be fine print — which sometimes can’t be read without a magnifying glass — bad credit cash loans as they currently exist are an accident waiting to happen.

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Negative perceptions about faxless payday loans really aggravate Megan Tracy, a 42-year-old Concord woman who lives on $700 a month in Social Security and disability benefits.

The way she sees it, a $240 payday loan once a month gives her the boost she needs to make ends meet, allows her to rely less on church meals and gives her a chance to take her kids to the movies once in a while. It gives her a little extra cash while she’s waiting for her checks to arrive and once they do, she pays back the instant cash loans to avoid slipping further into debt.

“It works,” said Tracy, who testified last week against a proposed law to ban payday lending in New Hampshire. “My quality of life has gone up because of those loans.”

The problem, consumer advocates say, is that people like Tracy often fall into a vicious debt trap. Once they have taken out the first high-interest payday loan, they have to keep taking out more to continue making ends meet, and eventually they can’t repay the loans as the cost adds up. Payday advance loan lenders have launched a multimillion dollar campaign to try to change the perception of their industry.

But consumer advocates and some state lawmakers say payday loans should be curbed because they are a form of predatory lending whose victims can least afford it.

Opposing perspectives: Payday lenders offer two-week loans for up to $500, but they do not require a credit check. A customer shows a pay stub and writes a check for the amount borrowed (plus a fee) that will be cashed when the person’s next paycheck is issued. The small loans are controversial because of the interest rates.

For every $100 borrowed, customers are charged a $20 fee - which translates to an annual interest rate of 520 percent.

New Hampshire payday loan lenders say it is unfair to consider their fees interest rates and calculate them for a year since the loans are only two weeks in duration. A customer would have to take out a loan every two weeks for an entire year to actually pay that much interest in fees, and few, if any, customers do that, said Jamie Fulmer, a spokesman for payday lender Advance America. But consumer advocates say the charges are outrageous and should not be allowed.

New Hampshire lawmakers are considering a bill this session that would cap annual interest rates on payday and title loans at 36 percent. Title loans, like payday advances, are a two-week cash loan but consumers must hand over the title of their vehicle instead of a check.

Consumer advocates say a 36 percent cap is reasonable for those kinds of loans and anything higher is predatory. Easy payday loan and title lenders say a 36 percent cap will drive them out of business, leaving people like Tracy with nowhere to go for emergency cash.

The debate comes down to opposing perspectives of who is using the product and why.

A financial tool: Critics who claim the cash advance loan lending industry preys on low-income people who aren’t financially savvy do not paint an accurate picture, Fulmer said. His company is the largest payday lender in the country, with more than 2,900 stores in 36 states, including 20 stores in New Hampshire.

Contrary to what some believe, he said, most Advance America customers are not poor or uneducated. The average household income of Advance America customers is roughly $41,000 a year, all of its customers are employed, 90 percent have at least a high school education, and a little less than half own a home, he said.

“They’re your teachers, your bus drivers, your policemen,” he said. “The true middle-income folks.”

And they’re using payday advances the way they’re supposed to - as a one-time fix when an unexpected expense or circumstance leaves them with a gap between paychecks, he said. Ninety-seven percent of customers ultimately pay back their loans; 95 percent pay them back “on or about” when they’re due, he said.

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The state’s providers of payday advance loans have agreed to sharp new curbs on their practices and fees in exchange for ensuring they are not forced out of business in three years.

Crafted by Rep. Marian Mc-Clure, R-Tucson, the deal would prevent “rollovers,” where a lender essentially forces someone who cannot pay up in the two-week period to take yet another loan — and incur yet another fee.

Instead, lenders would be required to offer those without the necessary funds 90 days to repay.

More to the point, they could not charge additional interest or fees as long as the borrowers make the required interim payments on their payday loans online. That, said McClure, is significant as it drives the effective annual interest down from about 350 percent to less than 60 percent.

The lenders also agreed to new state oversight and limits on how often they can re-deposit a check that bounces. And there would have to be a 48-hour cooling-off period between loans.What the industry gets is repeal of existing law that would “sunset” the practice in 2010. That would allow the more than 720 Arizona payday loan stores throughout the state to remain open.

“The statutory sunset date is a growing hassle for the industry,” said Lee Miller, who lobbies on behalf of the Arizona Community Financial Services Association which represents the lenders.

He said the question of what would happen in 2010 creates “uncertainty’’ for the industry, like whether to sign a new retail lease which typically has a five-year term. McClure, who never has been a fan of the high-interest personal loans, said the industry’s desire for action now gave her the ammunition she needed to extract concessions.

The biggest, she said, is the repayment plan.

Those extensions would disappear. Instead, lenders would have to set up a plan of six payments over 90 days to let the borrower repay the money owed. McClure said only if there is a default in any of the scheduled payments can the check cash advance lender charge 3 percent of the unpaid balance.

HOW IT WORKS
1. Payday lenders agree to accept a check that they and the borrower know is not bankable and hold it for up to two weeks.

2. The fast payday loan borrower writes the check for 15 percent more than the amount he or she receives in cash.

3. The 15 percent markup becomes the fee for the lender.

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In California and across the nation, reforms aimed at African-American and Latino payday loan borrowers seek to educate customers about the use of such loans, while also offering a once-a-year break to borrowers who don’t pay back loans quickly.

Critics say the $40 billion payday industry which crowds the streets of California’s lower income neighborhoods is the greatest obstacle to creating and retaining wealth for many African-American and Latino families.

About 13 states have banned payday advance loan lending arguing the interest rates are exorbitant and often trap financially strapped borrowers into a cycle of paying additional “rollover” fees to renew the same principal.

Against this backdrop, the Community Financial Services Association of America (CFSA), a trade group that represents about 60% of the nation’s payday lenders says it will band advertising loans for “frivolous” purposes such as gambling, entertainment or vacations and will warn borrowers that “payday advances should be used for short-term financial needs only, not long-term financial solutions.”

The biggest change would give customers more time to pay back a loan with no financial penalty. This “extended payment plan” would be available at least once a year and provide borrowers between two and four extra months to pay off loans.

The industry has launched a $10 million media advertising campaign on BET, Telemundo and Univision targeting African-American and Latino audiences.

Consumer advocates call the move “a public relations gimmick aimed at heading off more regulation.”

The cash advance payday loan industry is under intense pressure from state legislatures and Congress. “This is an attempt to stay ahead of the regulators. This does not solve the problem of triple digit interest rates for payday loans that traps borrowers into a vicious cycle of debt,” said Jean Ann Fox of the Consumer Federation of America.

Millions of Americans take out small loans from so-called payday loan shops and then find themselves paying sky-high interest rates that can soar to 500 percent a year. But making loans for people who live paycheck to paycheck has become a multi-billion dollar enterprise with more than twice the number of stores as Starbucks.

Here’s a borrowers profile: Credit constrained, and/or working but low income, young female head of household African-American, Latino, renter. African-American households are 2.5 times more likely to use payday loans than whites. Cash loan lenders are more prevalent in low income communities. Borrowers are typically 3 times more likely to be burdened with debt or been denied credit.

“Traditional mainstream banks have abandoned lower-income communities and communities of color while their role is being filled by predatory check cashers, payday lenders and finance companies that prey on consumers with few financial alternatives,” said Alan Fisher, executive director of the California Reinvestment Coalition. “Millions of dollars are being taken out of the pockets of the working poor in predatory fees.”

“Payday lenders make it easy for poor people to keep borrowing money,” said Elizabeth Dixon, a Riverside CPA who specializes in building and managing wealth among African-American families.

“The lack of bank and savings & loans branches in neighborhoods of color has created a price gouging opportunity.” Dixon recalls a client who borrowed $225 in cash. The man wrote a post dated check for $300, paying a fee of $45 for the transaction. “His check bounced when the payday lender cashed it. He was charged $28 dollars. For this one payday loan he ended up paying $118 in fees - almost 50 percent of what he borrowed,” said Dixon.

Payton Brown started borrowing money from a pay day loan lender when he was in college at Cal State San Bernardino, and said he quickly became addicted.

“I started going there literally every week,” said Brown, now a 29-year-old retail manager. “Eventually my world crashed. I borrowed from one lender to pay off another. When I graduated I was completely broke. You don’t have to be poor and ignorant to get caught up in the payday loan spiral,” said Brown.

Darrin Anderson, president of CFSA, who also serves as president of QC Holdings, Inc. a Kansas payday lender, defended the groups reforms saying the changes are meant to help the 5% to 10% of borrowers who don’t pay off their personal loans.

“My hope is these reforms really do solve a problem for the small percentage of our customers who have trouble meeting their obligations to us.”

Nick Cavinta was spent - out of luck, out of favors, out of money.

The metalworker had gambled away his paychecks in casino blackjack games for two years — since a divorce that left him depressed and lonely. He’d tapped out friends, children, credit cards.

On this Saturday morning in 2001, after gambling all night, he slouched through the New Phoenix Casino, a cardroom in La Center, Wash., figuring he was finished. Then, a friend told him about a way he could keep gambling.

An hour later, Cavinta was at a no fax payday loan lending store in Portland. He borrowed $200 at the cost of $40 in interest - for a two-week loan, that’s an annual rate of 521 percent. Then he headed back to the New Phoenix.

Cavinta, now 53, estimates he took out 200 more no fax needed payday loans before getting help for his gambling addiction a year ago.

Counselors say problem gamblers commonly turn to payday lenders, often after they’ve exhausted other sources of money.

Payday cash advance lenders offer gamblers ready cash with no questions. And they’re convenient. With about 360 payday stores in Oregon, more than the number of McDonald’s restaurants or Starbucks coffee shops, most gamblers don’t have to go far to find money.

If payday lenders didn’t exist, problem gamblers “would hit bottom more quickly,” said Marcia Mattoso, a gambling counselor and outreach coordinator for Cascadia Behavioral Healthcare, a Portland nonprofit that operates the state’s largest gambling counseling service. Payday loans “make gamblers’ finances even worse than they were in the first place.”

Video lottery, the game of choice for most problem gamblers, sends broke players to bad credit cash loan lenders who in turn give gamblers more money to burn on video lottery.

During the past seven years, the number of payday loans in Oregon nearly tripled, to 841,000 a year; annual video lottery revenue increased by 82 percent, to $733 million; and the number of gamblers turning to counselors for help doubled, to 1,714.

Only a fraction of problem and pathological gamblers - estimated to number about 74,000 in Oregon - seek help, though the state sets aside lottery revenue to offer gambling therapy free.

A common practice
Counselors’ estimates on the proportion of addicted gamblers who turn to online payday loans range from 10 percent to more than half.

“If you’re going to make it really easy for desperate people to dig themselves into a deeper hole, they are going to do that,” said Josh White, clinical supervisor for the Oregon Health & Science University Behavioral Health Clinic in Portland. White estimates that more than half of the 80 gambling addicts served in his clinic have borrowed from payday lenders.

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Despite much sound and fury, it appears legislators will do nothing this year to crack down on controversial Washington payday loan lenders.

“None of the payday bills are going. They’re dead,” said state Rep. Sherry Appleton, a Poulsbo Democrat who wants to cap payday interest rates.

Payday advances are small, short-term advances offered at high interest to people who need money fast before their next paycheck. Critics charge that the loans trap the working poor in a cycle of debt, while proponents argue the thriving industry provides a needed service.

The payday stores seems to be on every street in some parts of Tacoma. The biggest concentration in the state is in the South Tacoma and Lakewood legislative district of Rep. Steve Kirby, a House committee chairman who killed Appleton’s payday bill.

Kirby said Appelton’s proposal to cap annual percentage rates at 36 percent would have driven the industry out of business. Kirby offered less dramatic faxless payday advance measures, but none made it to the House floor before a key deadline on Wednesday.

“To some people this was an all-or-nothing deal,” Kirby said. “And around here that’s a really good way to end up with nothing.”

Payday cash loan lenders are allowed to charge a maximum fee of 15 percent. That amounts to a $75 fee on a $500 loan, which pencils out to an annual percentage rate of 391 percent on a 14-day loan.

Kirby had pushed a bill to let payday borrowers have a 60-day payment plan once a year at no additional cost.

It’s similar to a change that a national instant payday loan lending trade group is voluntarily adopting in order to beat back moves by state legislatures across the country to clamp down on the industry.

Kirby and Appleton had also co-sponsored bills to create a financial literacy program for borrowers and to study putting together a database to track the loans. Kirby has said that creating a database could allow payday lenders to see if a borrower has multiple loans out. A database could set the stage for a future law putting limits on how many loans a borrower can have out at one time, he said.

But Appleton said her enthusiasm for the database bill flagged because she doesn’t want providers of instant cash loans to get names of all the borrowers.

Appleton was also upset that Kirby’s financial services committee watered down her bill to educate borrowers. The original version, which Kirby co-sponsored, would have required lenders to pay a 25-cent per-loan surcharge to pay for the financial literacy programs.

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A compromise bill to impose new regulations on the New Mexico payday loan industry passed 37-5 in the Senate on Thursday and will now go to Gov. Bill Richardson, whose office helped broker the deal.

The bill will impose new caps on fees and interest rates and new restrictions on the amount of short-term loans a person could take out. It eliminates rollovers and provides a payment plan for those unable to pay their loans in time.

There was a great deal of debate in the Senate as to what impact the new law would have. Opponents of the bill said it would shut down an industry that people need and put small-business owners out of work. Supporters of the bill disagreed.

“We’re not trying to close down this industry because we have identified the fact there is a huge need for this industry,” said Sen. James Taylor, D-Albuquerque, who presented the bill in the Senate. “But, we’ve also identified that there is no need for these companies to be pillaging and raping consumers.”

Taylor said interest and fees on faxless payday loans often exceed 500 percent annually, and there is no limit on the number of loans and number of rollovers on any one loan.

The bill would limit personal cash loan terms to between 14 days and 35 days, with no enewals or rollovers. Those unable to pay off the loan at the end of that time would be able to enter into a payment plan of at least 130 days at no extra cost.

The bill restricts fees to no more than $15.50 per $100 loaned, plus 50 cents to create a new verification database. Borrowers could only take out loans for up to 25 percent of their monthly income. And, those who have been in a payment plan would have to wait at least 10 days after paying off their loan before they could take out a new no fax cash advance loan.

Sen. Rod Adair, R-Roswell, attempted to amend the bill to increase the fees to $18.50 per $100. He said a study done by the state showed that much was required for the companies to make a profit.

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The bad news: Predatory payday lending is still alive in Virginia, at least until our next General Assembly session. Every year this problem goes unaddressed, payday cash advance lenders strip $160 million in excessive fees from the paychecks of hardworking Virginians.

The good news: People are getting it. Gov. Timothy Kaine gets it. He publicly declared his intention to impose a limit on the amount of interest payday lenders could charge.

Members of the House of Delegates get it. They passed an interest rate cap of 72 percent for payday loans - still twice the normal usury limit for Virginia’s small loan companies, but a much more reasonable rate than the 400 percent payday lenders typically charge.

And the general public gets it. Concerned citizens from across the commonwealth continue to voice their discontent over the exploits of payday lending. Faith groups call it usury, moral outrage. The business community is ashamed to be associated with payday lenders. Labor leaders decry the maltreatment of their members.

This issue is not going away. Including Virginia, legislators in at least 13 states have introduced legislation this year that would place similar interest rate caps on bad credit cash loans and car title loans to all their citizens. Virginia’s General Assembly was the first legislature to consider such a measure in 2007, and could have been the first to enact the law, providing true leadership in a movement that continues to grow across the country.

But the payday industry hijacked the process, using a slick public relations campaign and lobbying blitz to push its own idea of “reform.”

There was a reason they were so willing to accept these so-called reform measures - each had been tried in other states, and each had failed to stop the abuses. In other words, the payday advance loan lending industry’s version of reform was a package of half measures that, at the end of the day, would allow them to conduct business as usual - debt trap and all.

When it became clear that the industry was never interested in real reform that addressed the abusive aspects of payday lending, Kaine called their bluff and announced his objective to amend the bill when it reached him by adding an annual interest rate cap of 36 percent. If it’s good enough for military families, its good enough for all Virginians, the governor told the press.

The payday cash loan industry killed the bill rather than agree to this cap.

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There’s an easy way for Oregon to help low-income families in our state be more stable and productive, and to protect middle-income families who get caught by debt problems when, for example, medical bills mount unexpectedly:

• Oregon could protect these families from irresponsible cash advance lenders.

Oregon currently allows most consumer lenders to charge whatever interest rates they can squeeze out of their customers, no matter how desperate those customers may be.

Some Oregonians think that the state Legislature solved this problem last year when it enacted an annual interest-rate cap of 36 percent on no fax payday loans, to take effect this coming July.

Unfortunately, payday lenders have already found a way around the rate cap, even before it goes into effect. Because the rate cap will apply only to “short-term” consumer lenders, payday outfits are avoiding the cap simply by altering their loan product a bit and obtaining a new “conventional” consumer lender’s license from the state.

The cap on quick payday loan interest doesn’t protect consumers from other greedy lenders. Car-title lenders, for example, will remain free to charge unlimited rates of interest and fees. Check-cashing outfits also face no limits on their fees; these outfits are not even required to obtain a license from the state.

Gov. Ted Kulongoski has proposed a series of bills to improve the situation. One bill (House Bill 2205) makes it more difficult for short-term payday lenders to avoid the rate cap taking effect in July by morphing into “conventional” lenders. Another bill (HB 2204) extends the 36 percent interest-rate cap on short-term payday loans to short-term car title lenders. A third bill (HB 2202) requires check-cashing outfits to limit the fees they charge to cash government and payroll checks.

Each of the governor’s bills won the support of at least two-thirds of the Oregon House of Representatives. They now await action in the Senate.

Low- and middle-income Oregonians can applaud these bills. They would take Oregon a couple of significant steps forward in protecting desperate families from irresponsible providers of payday cash loans.

To fully protect consumers from greedy lenders, though, additional steps are necessary. Most importantly, Oregon needs a reasonable blanket interest-rate cap on all consumer loans. The only way to keep lenders from finding loopholes that allow them to skirt an interest-rate cap is to extend the cap to all consumer loans.

There are now more fast payday advance lenders in Oregon than McDonald’s and 7-Elevens combined. These outfits are canaries in Oregon’s mine shaft, warning us of the dangerous levels of desperation among our families. We can relieve the pressure by cutting down on the profit being made off economically strapped families. It’s the responsible thing to do.

Michael Leachman of Portland is a policy analyst for Oregon Center for Public Policy in Silverton.